Fallacies In Economic

Fallacies In Economic

Fallacies (in economic thinking), propositions which seem to be true but are not. Economic fallacies embrace three main elements: time, composition and other 'variables'.

The fallacy involving time frequently occurs in economic propositions which do not make clear that they are subject to a time factor. it is not true, for example, that in a growing economy subject to various shocks and influences the major variables, wages , profits, prices and costs, will always find their level; but it is time that they are always tending to find their level. This fallacy frequently arises in modern dynamic economics, where it is often asserted that elements in the economic system will grow at an equilibrium rate; all that is meant or can be said is that the rate will tend to move towards that which is the equilibrium

The fallacy of composition derives from the practice of using terms collectively in one part of an argument and individually elsewhere. This type of confusion affects a large number of the popular errors which economic science has attempted to dispel, in which what is true of a part is, on that account alone, alleged also to be true of the whole. For example, it is often asserted that what is prudent behaviour for an individual or a single firm must be prudent for the country as a whole. If all members of a nation try to save more (spend less), it does not follow that the total level of savings will rise: it may fall. Older fallacies relating to wages and employment come under the same heading; e.g. the 'Luddite' notion of making more work for men by breaking machinery is plausible only as long as attention is confined to the interest of the particular individual who may thus obtain a job. Those who argue in favour of customs unions or free trade areas are not altogether free of this fallacy if they ignore the distinction between the interest of a particular country or a group of countries and that of the world as a whole.

Finally, many mistakes have been made when variable quantities have been treated as fixed. The former 'Iron Law ' that wages tend to sink to the point of bare subsistence is an instance of this fallacy. Marshall, at the turn of the century, did much to expose this kind of fallacy and introduced into economic theory a new sense and under-standing of the way in which different factors mutually determine one another.

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Since then his writings have in turn been increasingly reinterpreted as a special case both by some followers and by some economists who had not wholly accepted his writings. The content of economics is in a state of change, and this consumeraffairs.org.uk site is therefore not a final statement of economic doctrine.

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